This Cash on Cash Return Calculator helps investors evaluate the profitability of a rental property by calculating the percentage of return relative to the total cash invested.

Cash on Cash Return Calculator

Cash on Cash Return Calculator

This calculator helps in determining the cash-on-cash return for a rental property investment. It shows the return percentage relative to the total cash invested.

ⓘ Enter the total yearly rental income after deducting all operating expenses.
ⓘ Enter the total yearly mortgage payments for the property.
ⓘ Include the down payment, closing costs, and renovation costs.

Steps to Calculate Cash on Cash Return for Your Property

To calculate your cash on cash return, follow these steps:

  1. Determine your annual net rental income. This is the total amount of rent collected after all operating expenses, such as maintenance, property taxes, and management fees, are deducted.
  2. Subtract your annual mortgage payments from your net rental income to calculate your annual cash flow.
  3. Input your total cash invested. This includes the down payment, closing costs, and any additional expenses, such as renovation costs.
  4. Divide your annual cash flow by the total cash invested, then multiply by 100 to get the cash on cash return percentage. The formula looks like this:

Cash on Cash Return Formula:

\(\text{Cash on Cash Return} = \left( \frac{\text{Annual Cash Flow}}{\text{Total Cash Invested}} \right) \times 100\)

Cash on Cash Return: Key Factors to Consider

When calculating cash on cash return, there are several factors you need to consider that can affect your results:

  • Rental Income: A higher rental income will directly increase your annual cash flow, leading to a better cash on cash return.
  • Mortgage Payments: Large mortgage payments can significantly reduce your annual cash flow. It’s important to balance your mortgage terms to optimize returns.
  • Property Expenses: Regular maintenance, taxes, insurance, and unexpected repairs will all reduce your net income, impacting your overall return.
  • Investment Size: The amount of cash you invest upfront affects your return. A higher cash investment will dilute your return percentage, while a lower investment could amplify it.

How to Improve Your Cash on Cash Return

There are several strategies to boost your cash on cash return:

  1. Increase Rent: If market conditions allow, raising the rent can enhance your rental income and thus your cash return.
  2. Reduce Operating Costs: Minimize expenses by negotiating better insurance rates, reducing maintenance costs, or finding ways to lower property management fees.
  3. Refinance Your Mortgage: If interest rates drop, consider refinancing to reduce your mortgage payments, which will increase your cash flow.
  4. Renovations: Targeted property upgrades can increase rental demand and allow you to charge higher rent, improving your overall return.

By focusing on these areas, you can optimize your cash on cash return and ensure that your real estate investment remains profitable.

 

More Investment-Tools:

 

4.7/5 - (70 votes)